BL17 FINAL - Page 24

he rich are getting richer
and the poor are getting
poorer. This assertion has
become so widespread
that more than half the British
public believe it to be fact. Whoever
has been spreading this message
has certainly done a good job. Its
only flaw is that, on almost any
reading of the data, it isn’t accurate.
Winston Churchill famously
observed that a lie gets halfway
round the world before the truth
has got its boots on. So, let’s get our
boots on, tie up our laces, and nail
the lie. Many today want to believe
the absolute worst of everything,
from climate destruction to Brexit
uncertainty to the plight of the
disadvantaged. I hope to persuade
you that the world is a better and
more equal place than you think.
The standard measure of
differences in income used by
economists is the Gini coefficient. It
can theoretically fluctuate between
0 and 1. A zero score means that
everyone has exactly the same
annual earnings, while an outcome
of one means a single individual
gets all of the income in society and
the rest of us get nothing.
It is true that in the UK in the
1980s, incomes became more
unequal. The Gini coefficient rose
from about 0.25 to about 0.34 over
a decade. However, it’s important
to realise that while the rich were
indeed getting richer, the poor were
not actually getting poorer. Joe
Average saw his income rise over
the 1980s, as did Johnny Struggling.
They just didn’t see their position
improve quite as much, in
percentage terms, as Billy Affluent.
Since the early 1990s though,
the Gini coefficient in Britain has
essentially flatlined. If anything,
incomes are a bit more equal than
they were 25 years ago. The
financial crisis did a lot to reduce
inequality: everyone suffered, but
the rich tended to suffer more than
most. If a more equal, rather than
a more prosperous, society is your
goal, you should probably wish for
another banking crash.
In Britain, we ask the affluent to
shoulder a greater share of the tax
burden than ever before. The top 1
Yes the 1 per cent are eye-wateringly
wealthy, but the rest of us aren’t as
badly off as we’ve been led to believe
Director of the
Institute of
Economic Af fairs
per cent of earners now contribute
a quarter of all income tax receipts.
The top 10 per cent pay more than
half the total income tax bill.
Perhaps it isn’t income, but
wealth, that worries the equality
campaigners. The ultra-rich might
not be earning more every year, but
if their capital assets rise ever
upwards, this is unacceptable to
anyone living hand-to-mouth.
It is certainly true that there are
more billionaires in the world than
ever before. By some estimates, a
new billionaire is created every two
days. Every year, Oxfam – which
has tragically morphed from a
poverty-relief charity into a
left-wing campaigning organisation
– releases a report to shock us about
the colossal levels of wealth in the
hands of a select few mega-rich
individuals. They typically conjure
a jaw-dropping figure about the
richest ten people in the world
being worth more than the bottom
50 per cent of the world population.
There are many reasons to treat
these eye-catching statements with
a bucket of salt. Not least is the
stunning statistic that over half the
global population is under 30. As
a general rule, we don’t tend to
accumulate many assets by age
30. We would expect the combined
wealth of the planet’s under-30s to
be pretty small and far below the
combined wealth of the older half.
In fact, more than a quarter of the
human race is under 14. We can
reasonably expect them to have no
wealth at all. If you are a moderately
affluent Brit, who owns your own
house and has a reasonable savings
portfolio, then you could well be
wealthier than the bottom 10 or 20
per cent of the world’s population,
simply because children don’t own
much. This isn’t very surprising
and certainly isn’t a moral outrage.
In a sensibly functioning
economy, we should expect to find
considerable wealth inequality. In
the early years of our working life,
we seek to clear debts. We typically
start to accrue wealth as our careers
develop and our earnings improve.
Hopefully, we start saving for our
pensions. We’d expect our overall
wealth to peak at some point in our
mid-60s. At this stage, we are likely
to be reducing our working hours
and earnings and depleting our
capital until we finally shuffle off
this mortal coil – hopefully many
years later. If people in their early
60s are not enormously wealthier
than people in their mid-20s, we
have a problem. We should not
merely expect a massive wealth
inequality between these cohorts,
we should actively welcome it.
Of course, the eye-wateringly
rich are well beyond having to
worry about their pensions. Bill
Gates has more money than he
could ever spend on himself and
his family and is therefore choosing
to give much of it away. But is it
really a problem that there are more
billionaires than ever before?
Assuming their affluence is borne
of entrepreneurial genius rather
than, say, extracting £5 a year from
every African family at gunpoint,
then they are adding enormously to
global prosperity. In fact, although
the money made by Microsoft,
Google, and Amazon is huge, it
amounts to a small fraction of the
overall boost to the wider economy
from their products and services.
The claim that the rich get richer
while the poor get poorer is
groundless. We need to be highly
selective about the data we use to
make such claims stand up to
scrutiny and ensure there are no
vested interests in persuading us
that things are far worse than they
are. The world is getting richer for
nearly everyone and for the first
time in history we are tantalisingly
close to eradicating extreme
poverty altogether. That is thanks to
the rise of global trade, capitalism,
and free markets. Don’t let doommongers persuade you otherwise.

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